The end of the year is a time of gift-giving, meals with family, and usually (but not always) higher-than-average stock market returns.
Historical data shows that the so-called “Santa Claus rally” is often a real phenomenon. However, we didn’t get a Santa Claus rally this year. Here’s what that could mean for markets in 2025.
What is the Santa Claus rally?
The Santa Claus rally refers to the anomalously high average returns of the stock market during the last five trading days of December and the first two trading days of January.
According to a 2023 study by LPL Research, from 1950 to 2022, the S&P 500 index posted an average return of 1.3% during this holiday period, compared with an average return of just 0.2% for all other rolling seven-day periods.
The effect isn’t huge in absolute terms — but the presence or absence of a Santa Claus rally in a given year is sometimes viewed as a signal for what investors should expect in the year ahead.
LPL’s data shows that the S&P 500 rose during the Santa Claus rally period in 80% of the years from 1950 to 2022. After those years, the index posted an average annual return of 10.4%. But after the 20% of years that lacked a Santa Claus rally, the index only posted an average annual return of 4.1%.
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Was there a Santa Claus rally at the end of 2024?
No, there was no 2024 Santa Claus rally. Between December 24, 2024 and January 3, 2025, the S&P 500 fell by more than 1.5%.
What does that mean for the year ahead? It’s hard to say.
On the one hand, we are in the midst of a relatively new bull market. According to research from investment banking firm Stifel, the average S&P 500 bull market from 1932 to 2023 lasted 4.9 years and had a cumulative return of 177.6%. It has been a little more than two years since the end of the last bear market, and the S&P 500 has “only” risen by about 65% since then. So statistically speaking, we may not even be at the halfway point yet.
But on the other hand, 4.9 years is just the average length of a bull market. This one could be shorter, for any number of reasons — for example, high inflation could force the Federal Reserve to keep interest rates high, or tariffs could create new costs for businesses in the year ahead, both of which could put pressure on stock prices.
Should you try to profit from the Santa Claus rally next year?
When it comes to long-term investing, financial advisors generally don’t recommend trying to time the market. They’re more likely to recommend consistent, low-maintenance investing strategies such as dollar-cost averaging into index funds.
For day traders who want to try to profit from the Santa Claus rally in future years, it’s worth noting that the effect may be concentrated in certain areas of the market and certain days of the period.
A 2016 study published in the Managerial Finance journal found two nuances to the Santa Claus rally effect:
